Air France-KLM Strengthens Group Structure

Seeking greater integration of its subsidiaries to better capture efficiency and economies of scale, Air-France-KLM’s board decided on Tuesday to move toward a new governance “to reach European airline leadership” and improve the overall profitability of the Franco-Dutch group. A new group CEO committee, chaired by Air France-KLM CEO Ben Smith, will determine the strategic direction for all group airlines and business units. The other members of the CEO committee include KLM CEO Pieter Elbers, Air France CEO Anne Rigail, and Frédéric Gagey, CFO of Air France-KLM. The three of them will report directly to Smith, who took the helm only in September.

The new group governance aims to simplify key operational processes such as fleet and network strategy, commercial and alliances strategy, human resources, purchasing, digital, and data management.

While in 2004 Air France and KLM became the first two major flag carriers in Europe to merge, they never reached the same level of integration Lufthansa or International Airlines Group achieved, something Smith had sought to change since he took over as CEO of Air France-KLM last fall. The pending changes and deeper integration, however, in recent weeks led to doubts about whether Smith would support the renewal of Elbers’s four-year mandate as CEO of KLM. The speculation over the potential ouster of Elbers assumed melodramatic proportions in both the Dutch and French media, and prompted meetings on the highest political and managerial level while KLM employees organized a companywide petition in support for his reappointment.

The matter now appears settled. The Air France-KLM board on Tuesday confirmed it would support the reappointment of Elbers as head of KLM, whose mandate ends in April. In return, KLM agreed it would support the appointment of Smith to its supervisory board at the next AGM in April—a move the Dutch unit so far has firmly resisted for fear some would regard it as French meddling in Dutch matters. KLM is far more profitable than Air France and has managed, in contrast to its French sister airlines, to reduce costs and reach a new collective labor agreement without any strikes of its staff. “With Pieter Elbers at the helm of KLM for the next four years, KLM is ready for its future, and committed to contribute to the success of Air France-KLM,” KLM said in a statement, noting that its supervisory board and works council already unanimously supported the reappointment of Elbers. “The board is happy that the reappointment may now also count on the positive vote of our main shareholder, Air France-KLM.”

Elbers and his French counterpart, Rigail, also assumed the positions of Air France-KLM deputy CEOs. “We are convinced that Benjamin Smith and his team, with the renewal of Pieter Elbers, will drive further growth at Air France-KLM, leveraging the combined strength and experience provided by the Group and its airlines," said Anne-Marie Couderc, chairman of the Air France-KLM board.

Separately, Air France ‘s main pilots' union, SNPL, on Tuesday approved a new pay and work conditions deal following months of negotiations and several strikes that led to the resignation of Smith’s predecessor, Jean-Marc Janaillac, in May last year. “After months of conflict, it was time to enter a new era of social dialogue,” Guillaume Gestas, president of SNPL Air France ALPA, noted. The vote, he said, “confirms the desire of everyone to go forward to offer new opportunities to the company and the group”, though he cautioned that the pilots’ confidence in the new management of Air France did not amount to a “blank check” and the union “will be particularly attentive to the strict respect for the guarantees of the agreement.”

The French carrier already signed an employee compensation agreement, including a 4 percent general pay increase spread over 2018 and 2019, with the main unions representing ground staff and cabin crew in October last year.